Upcoming home purchase - does it impact our retirement plan?

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beagle1
Posts: 137
Joined: Sat Oct 02, 2010 3:09 pm

Upcoming home purchase - does it impact our retirement plan?

Post by beagle1 »

Edited down based on comments

We are in escrow to buy a house in a HCOL area (coastal southern California) for $1.9 million.

Down payment and rate: We'll be contributing income from recent home sales (primary residence and rental property) plus savings for home purchase. The mortgage will initially be 525k at a rate of 4.875%. We're projecting a monthly expense of $4306 for mortgage, insurance and property taxes. (We also will keep funds set aside for maintenance).

Mortgage Payoff: We plan to pay down all or most of the loan within three to five years by selling from our taxable investment account or another property we own. At the very least, we'll knock the loan down to $250k within the next three years.

Age:We are 58 and 54 years old, with plans to work at least three more years, and probably five years.

Income in Retirement: The Plan Vision/eMoney software shows us with a negative cash flow averaging 45k for the first ten years of retirement, then turning positive once the second spouse starts receiving social security. From there, it shows positive cash flow until death. Even though there's negative cash flow, portfolio assets continue to stay stable due to investment income. eMoney does take into account taxes on distributions.

Our assets - outside of the house - increase from 2mm to 3mm upon death. PlanVision's assumptions are a return rate at 2% and inflation at 1.2%

What do you think? We never planned on having a mortgage in retirement, which is my concern. I think we're in good shape but I'd love to hear your thoughts. Any feedback or help is greatly appreciated! Thank you for reviewing.
Last edited by beagle1 on Fri May 13, 2022 5:09 pm, edited 11 times in total.
Topic Author
beagle1
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Joined: Sat Oct 02, 2010 3:09 pm

Re: Upcoming home purchase - does it impact our retirement plan?

Post by beagle1 »

Posted this yesterday and edited it for clarity, hoping we'll get a response or two. Joining Bogleheads in 2010 changed our lives so we love hearing feedback from folks here on big life decisions.
Apathizer
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Re: Upcoming home purchase - does it impact our retirement plan?

Post by Apathizer »

beagle1 wrote: Thu May 12, 2022 2:14 pmWhat do you think? We never planned on having a mortgage in retirement, which is my concern. I think we're in good shape but I'd love to hear your thoughts. Any feedback or help is greatly appreciated! Thank you for reviewing.
Why do you want to take on the debt, complexity, and risk of homeownership in retirement? To me prospective retirement is about relaxation and simplicity. I'm younger than you (50), and plan to sell my house next year since I don't even like being homeowner now. It's a ball-and-chain I never want to locked into again.
ROTH: 40% AVUS, 35% DFAX, 25% BNDW. Taxable: 50% BNDW, 30% AVUS, 20% DFAX.
Topic Author
beagle1
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Re: Upcoming home purchase - does it impact our retirement plan?

Post by beagle1 »

Thanks for your perspective. This is definitely a concern and a valid one that we've thought about.
Apathizer wrote: Fri May 13, 2022 2:19 pm
beagle1 wrote: Thu May 12, 2022 2:14 pmWhat do you think? We never planned on having a mortgage in retirement, which is my concern. I think we're in good shape but I'd love to hear your thoughts. Any feedback or help is greatly appreciated! Thank you for reviewing.
Why do you want to take on the debt, complexity, and risk of homeownership in retirement? To me prospective retirement is about relaxation and simplicity. I'm younger than you (50), and plan to sell my house next year since I don't even like being homeowner now. It's a ball-and-chain I never want to locked into again.
sureshoe
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Re: Upcoming home purchase - does it impact our retirement plan?

Post by sureshoe »

beagle1 wrote: Thu May 12, 2022 2:14 pm We are in escrow to buy a house in a HCOL area (coastal southern California), in a great neighborhood with beach and bay views. It's a dream property for us. Price is $1.9 million. It includes a casita that is rentable
I might challenge you on "why is it a dream home"? You are multiplying your home costs by 4... when you're nearly 60. That's odd to me. Is it in a retirement community or something? Or, do you just feel you have money to burn and you want to?

PERSONALLY (and retirement is personal), I would think that money would be better used for travel, rental, exploration, etc. But, it depends on what is keeping you in this area.
Current Income/Expenses: At present, net income (post tax) is roughly 12k/month and expenses are roughly 7k/month.
I don't know... this just seems off to me. You have money to spare - does this mean you're only saving around $4-5k/month? And you're getting ready to burn thru all that with the house?

The numbers are a bit confusing.

What might help is this: what do you project as your income in retirement? What do you project as your expenses? It's really that simple, and it's a bit obscured here, which is why maybe you haven't gotten good responses.
What do you think? We never planned on having a mortgage in retirement, which is my concern. I think we're in good shape but I'd love to hear your thoughts. Any feedback or help is greatly appreciated! Thank you for reviewing.
Rehashing now but PERSONALLY - I don't think it makes any sense to have this type of mortgage in retirement. $500k is a big mortgage for a retired person, particularly at nearly 5%. If you're going to buy this house, I'd pay it off unless it's buried in investments/accounts you can't get to it without penalty. (you might have explained it above, but I had trouble parsing it out) That's just my opinion - you're heading into retirement and your expenses are going UP, which isn't a great thing.
Topic Author
beagle1
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Re: Upcoming home purchase - does it impact our retirement plan?

Post by beagle1 »

Thank you, this is helpful. Our plan is to pay the mortgage down quickly. We can either sell the other property we own or use taxable investments to do that. That would still leave us with 2mm in retirement and investments. Plus we probably will save more for mortgage payoff in the years prior to retirement. But your points are valid and maybe we are biting off more than we can chew.
sureshoe wrote: Fri May 13, 2022 2:41 pm
beagle1 wrote: Thu May 12, 2022 2:14 pm We are in escrow to buy a house in a HCOL area (coastal southern California), in a great neighborhood with beach and bay views. It's a dream property for us. Price is $1.9 million. It includes a casita that is rentable
I might challenge you on "why is it a dream home"? You are multiplying your home costs by 4... when you're nearly 60. That's odd to me. Is it in a retirement community or something? Or, do you just feel you have money to burn and you want to?

PERSONALLY (and retirement is personal), I would think that money would be better used for travel, rental, exploration, etc. But, it depends on what is keeping you in this area.
Current Income/Expenses: At present, net income (post tax) is roughly 12k/month and expenses are roughly 7k/month.
I don't know... this just seems off to me. You have money to spare - does this mean you're only saving around $4-5k/month? And you're getting ready to burn thru all that with the house?

The numbers are a bit confusing.

What might help is this: what do you project as your income in retirement? What do you project as your expenses? It's really that simple, and it's a bit obscured here, which is why maybe you haven't gotten good responses.
What do you think? We never planned on having a mortgage in retirement, which is my concern. I think we're in good shape but I'd love to hear your thoughts. Any feedback or help is greatly appreciated! Thank you for reviewing.
Rehashing now but PERSONALLY - I don't think it makes any sense to have this type of mortgage in retirement. $500k is a big mortgage for a retired person, particularly at nearly 5%. If you're going to buy this house, I'd pay it off unless it's buried in investments/accounts you can't get to it without penalty. (you might have explained it above, but I had trouble parsing it out) That's just my opinion - you're heading into retirement and your expenses are going UP, which isn't a great thing.
delamer
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Re: Upcoming home purchase - does it impact our retirement plan?

Post by delamer »

What will you have left in assets once you pay off the dream house?

What will your total expenses (including incone taxes) be?

What will you sources of monthly income be, once you have no earned income in 5 years?

Without that information, your question isn’t really answerable.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
beagle1
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Re: Upcoming home purchase - does it impact our retirement plan?

Post by beagle1 »

Thank you for your reply! According to the eMoney retirement software, we will have 3 million in cash plus the new property (probably $3 million+ by that time).

We will have a pension, distributions and rental income at roughly 160k, escalating to 200k once distributions increase. We will have expenses at roughly 173k initially, capping off at $199k.
delamer wrote: Fri May 13, 2022 3:13 pm What will you have left in assets once you pay off the dream house?

What will your total expenses (including incone taxes) be?

What will you sources of monthly income be, once you have no earned income in 5 years?

Without that information, your question isn’t really answerable.
Topic Author
beagle1
Posts: 137
Joined: Sat Oct 02, 2010 3:09 pm

Re: Upcoming home purchase - does it impact our retirement plan?

Post by beagle1 »

beagle1 wrote: Thu May 12, 2022 2:14 pm Edited down based on comments

We are in escrow to buy a house in a HCOL area (coastal southern California) for $1.9 million.
Down payment and rate: We'll be contributing income from recent home sales (primary residence and rental property) plus savings for home purchase. The mortgage will initially be 525k at a rate of 4.875%. We're projecting a monthly expense of $4306 for mortgage, insurance and property taxes. (We also will keep funds set aside for maintenance).

Mortgage Payoff: We plan to pay down all or most of the loan within three to five years by selling from our taxable investment account or another property we own. At the very least, we'll knock the loan down to $200k within the next three years.

Age:We are 58 and 54 years old, with plans to work at least three more years, and probably five years.

Income in Retirement: The Plan Vision/eMoney software shows us, once we have Social Security, having income of $126k/year and planned distributions initially at 33k/year increasing to 71k/year.

We will have a pension, distributions, social security and rental income at roughly 170k, escalating to 200k once distributions increase. We will have expenses at roughly 173k initially, capping off at $199k and then decreasing slightly.

Our assets - outside of the house - increase from 2mm to 3mm upon death. PlanVision's assumptions are a return rate at 2% and inflation at 1.2%

What do you think? We never planned on having a mortgage in retirement, which is my concern. I think we're in good shape but I'd love to hear your thoughts. Any feedback or help is greatly appreciated! Thank you for reviewing.
Topic Author
beagle1
Posts: 137
Joined: Sat Oct 02, 2010 3:09 pm

Re: Upcoming home purchase - does it impact our retirement plan?

Post by beagle1 »

beagle1 wrote: Thu May 12, 2022 2:14 pm Edited down based on comments

We are in escrow to buy a house in a HCOL area (coastal southern California) for $1.9 million.
Down payment and rate: We'll be contributing income from recent home sales (primary residence and rental property) plus savings for home purchase. The mortgage will initially be 525k at a rate of 4.875%. We're projecting a monthly expense of $4306 for mortgage, insurance and property taxes. (We also will keep funds set aside for maintenance).

Mortgage Payoff: We plan to pay down all or most of the loan within three to five years by selling from our taxable investment account or another property we own. At the very least, we'll knock the loan down to $200k within the next three years.

Age:We are 58 and 54 years old, with plans to work at least three more years, and probably five years.

Income in Retirement: The eMoney software simulation shows our expenses exceeding income for the first ten years post-retirement, and then flowing positively for our remaining years. Our assets - not including the house - increase from 2mm to 3mm upon death. PlanVision's assumptions are a return rate at 2% and inflation at 1.2%

What do you think? We never planned on having a mortgage in retirement, which is my concern. I think we're in good shape but I'd love to hear your thoughts. Any feedback or help is greatly appreciated! Thank you for reviewing.
Apathizer
Posts: 827
Joined: Sun Sep 26, 2021 2:56 pm

Re: Upcoming home purchase - does it impact our retirement plan?

Post by Apathizer »

sureshoe wrote: Fri May 13, 2022 2:41 pm PERSONALLY (and retirement is personal), I would think that money would be better used for travel, rental, exploration, etc. But, it depends on what is keeping you in this area.
:D :D :D :D :D :D :D :D :D :D :D :D :D :D :D :D :D :D :D

That's exactly my thinking; not just in retirement, but life in general.

Research shows novel experience produces more long-term happiness than material belongings, including houses. Liquid assets enable more of the former, and limit the latter. Once we become acclimated to a new item the novelty wears off and it's just a condition of life.

Experiences over stuff.
ROTH: 40% AVUS, 35% DFAX, 25% BNDW. Taxable: 50% BNDW, 30% AVUS, 20% DFAX.
Youku
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Re: Upcoming home purchase - does it impact our retirement plan?

Post by Youku »

Are you able to transfer your property tax base from the primary residence you just sold? If not, $20K+ just on property tax is a big % of your retirement income.
Topic Author
beagle1
Posts: 137
Joined: Sat Oct 02, 2010 3:09 pm

Re: Upcoming home purchase - does it impact our retirement plan?

Post by beagle1 »

We can. The property tax will be roughly be 15k/year though depending upon the upcoming sale of our existing property (could be lower if it sells high).
Youku wrote: Fri May 13, 2022 3:47 pm Are you able to transfer your property tax base from the primary residence you just sold? If not, $20K+ just on property tax is a big % of your retirement income.
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